Increased Need for Crime Insurance for Small Businesses

Diligence is the key to preventing losses

Since the 2008 economic decline, there has been a sharp rise in crimes by employees and third parties. Fueled by the fear of unemployment, workers are fighting back against their employers. They’re more likely to take what they feel they deserve because of the work they’ve done for their company over the years. Not surprisingly, many companies are taking a closer look at risk controls to cut unnecessary costs and uncovering theft issues that may have been undetected in the past.

The majority of people who commit these crimes are not professional criminals. Rather, they’re in a financial bind and tend to rationalize such behavior as borrowing the money until they can pay it back.

Small businesses must take all necessary precautions to prevent employee theft and fraud. To this, they must address the fraud risks or their policy limits to adjust for the related losses. Only one in four private companies buys crime insurance. Stand alone crime policies are better than crime coverage added to Business Owners Policies (BOPs).

One way to determine an appropriate crime limit is to assume 5 percent of the company’s revenue will be the cost of fraud, and include that amount in the limit. Another way is to use organizations like Advisen that can evaluate a client’s cash flow, number of employees and business locations, employee turnover rates, and effectiveness to its internal risk controls.

Risk controls to minimize employee fraud:

Use prenumbered checks typed or numbers written in permanent ink

Be aware of employees who object strongly to new policies concerning financial, inventory, or supply matters

Employees with duties that include check preparation or distribution should not reconcile the bank checking account

Improve background checks of job applicants

Separate receiving, store keeping, and shipping functions. Complete physical inventories annually and assign them to an individual who is not responsible for inventory records.

Be aware of employees who exhibit signs of compulsive gambling, persistent borrowing, or repeated requests for salary advances.

Separate mail opening and posting functions

Record checks and cash in appropriate registers and stamp checks for deposit only